ABSTRACT
This chapter examines the ethical issues that arise from sovereign insolvency. The ethics of state bankruptcy rests on a principle that puts the priority on the state's existence and functioning over any full and timely settlement of overwhelming debt. A bankrupt individual's inalienable human rights turned out to be morally superior to his obligation to pay his overwhelming debt. A problem emerges and, in the case of natural persons and corporations, it becomes the task of bankruptcy laws to solve that problem. Expediency and creditor interest count most when deciding whether an insolvent corporation will live on or be wound down. Like a corporation, the state is a secondary moral agent, but unlike a corporation, the state is necessary to humans. The Nobel Laureate economist Joseph Stiglitz argues that a sovereign debt restructuring mechanism should ensure the same fairness for countries that bankruptcy laws ensure for individuals and corporations in the United States.
